Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

Note 12 – Segment Information

The Company operates in three business segments: Merchant Acquiring, Payment Processing and Business Solutions.

The Merchant Acquiring segment consists of revenue from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenue includes a discount fee (generally a percentage of the transaction value) and membership fees charged to merchants, debit network fees and rental fees from point of sales (“POS”) devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks.

Payment Processing segment revenue comprises income related to providing financial institutions access to the ATH network and other card networks, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. Payment Processing revenue also includes income from card processing services for debit or credit issuers such as credit and debit card processing, authorization and settlement, and fraud monitoring and control services, payment processing services (such as payment and billing products for merchants, businesses and financial institutions) and electronic benefit transfer (“EBT”), which principally consists of services to the government of Puerto Rico for the delivery of benefits to participants.

For ATH network and processing services, revenue is driven mainly by the number of transactions processed. Revenue is derived mainly from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenue is mostly dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenue is derived mainly from the number of beneficiaries on file.

The Business Solutions segment consists of revenue from a full suite of business process management solutions in various product areas, such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fee and from fees based on the number of accounts on file (i.e.; savings or checking accounts, loans, etc.) or computer resources utilized. Revenue from other processing services within the Business Solutions segment is generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC is a reseller of hardware and software products and these resale transactions are generally one-time transactions.

The Company’s business segments are organized based on the nature of products and services. The Chief Operating Decision Maker (“CODM”) reviews their individual financial information to assess performance and to allocate resources.

The following tables set forth information about the Company’s operations by its three business segments for the periods indicated:

(Dollar amounts in thousands)	Merchant Acquiring, net		Payment Processing		Business Solutions		Other			Total
Three months ended September 30, 2014
Revenues		19,227		32,255		43,805		(6,645	) (1)		88,642
Income from operations		8,518		14,707		12,696		(9,461	) (2)		26,460
Three months ended September 30, 2013
Revenues		18,211		32,342		44,472		(7,611	) (1)		87,414
Income from operations		8,568		14,056		11,282		(12,042	) (2)		21,864

⁽¹⁾  Represents the elimination of intersegment revenues for services provided by the Payment Processing segment to the Merchant Acquiring segment, and other miscellaneous intersegment revenues.

⁽²⁾  Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

(Dollar amounts in thousands)	Merchant Acquiring, net		Payment Processing		Business Solutions		Other			Total
Nine months ended September 30, 2014
Revenues		58,345		96,915		131,609		(19,896	) (1)		266,973
Income from operations		25,700		44,738		36,232		(29,892	) (2)		76,778
Nine months ended September 30, 2013
Revenues		53,835		92,168		136,965		(19,040	) (1)		263,928
Income from operations		25,963		38,536		30,600		(35,898	) (2)		59,201

⁽¹⁾  Represents the elimination of intersegment revenues for services provided by the Payment Processing segment to the Merchant Acquiring segment, and other miscellaneous intersegment revenues.

⁽²⁾  Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

The reconciliation of income from operations to consolidated net income for the three and nine months ended September 30, 2014 and 2013 is as follows:

	Three months ended September 30,						Nine months ended September 30,
(Dollar amounts in thousands)	2014			2013			2014			2013
Segment income from operations
Merchant Acquiring	$	8,518		$	8,568		$	25,700		$	25,963
Payment Processing		14,707			14,056			44,738			38,536
Business Solutions		12,696			11,282			36,232			30,600
Total segment income from operations		35,921			33,906			106,670			95,099
Merger related depreciation and amortization and other unallocated expenses (1)		(9,461	)		(12,042	)		(29,892	)		(35,898	)
Income from operations	$	26,460		$	21,864		$	76,778		$	59,201
Interest expense, net		(6,279	)		(6,349	)		(19,535	)		(31,267	)
Earnings of equity method investment		241			198			905			823
Other income (expenses)		(249	)		448			2,127			(77,020	)
Income tax (expense) benefit		(1,082	)		(1,358	)		(5,205	)		3,603
Net income (loss)	$	19,091		$	14,803		$	55,070		$	(44,660	)

⁽¹⁾  Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.